Top 5 risks: Asia Pacific

17 Jan 2017

Asia Pacific

Creating a Resilient Organisation

Steve Wilford

Top 5 risks for business in Asia Pacific

The end of globalisation – at least as Asia Pacific knows it. Since the end of the Cold War, Asia Pacific has been the globe’s greatest beneficiary of the resulting vast liberalization of trade, direct investment and supply chains. The region’s middle classes have profited enormously from this process in a way that the middle classes of the US and Europe feel, at least more recently, that they have not. The backlash in Asia Pacific’s two biggest markets (Europe and the US) against globalisation is the greatest threat to this region’s overall economic and political security over the next decade, never mind the next year.

Territorial tensions. These have been around for decades – the Sino-Japanese dispute in the East China Sea, the status of Taiwan, the dispute over islands in the South China Sea. What has changed is a new willingness by a resurgent China to press these claims and a new apparent ambivalence for the US to actively police them. As these ‘frozen’ conflicts have thawed, regional players like Japan, that have traditionally looked to the US for much of their security, will now begin to ‘self-insure’ against Chinese aggression by ditching its peace constitution and ramping up its military spending. Nevertheless, that uncertainty over US strategic commitment to the region may also have risk to the upside as we are already seeing with the likes of Malaysia and the Philippines attempting to hedge against this US uncertainty by moving closer to China. Providing China doesn’t seek to flaunt its territorial expansion, tensions in the South China Sea may actually decline, but divisions within ASEAN are likely to increase.

Populism and performance legitimacy. The consequences of the China slowdown and Western protectionism will increasingly bite in Asia. Elites in this region will seek to shore up their legitimacy through populism. This will vary in style, but the intent will be the same – shore up faltering political machines with popular gestures. In Thailand, the Junta will distract the public from a weak economy and continued authoritarianism with appeals for unity around the new monarch. In India, the Modi government will intersperse hard choices with appeals to Hindu nationalism. In Malaysia, Prime Minister Najib Razak will continue to fight a rear-guard action against his poor standing by wooing conservative Muslims. In the Philippines, President Rodrigo Duterte, who built his mandate from the very beginning on populist gestures, will continue to skirt the country’s more intractable problems with dubious campaigns.

China’s regulatory whiplash. China is tightening its regulatory regime and both Chinese and foreign businesses in the country are going to feel considerable strain in 2017. The potential for trade disputes between most obviously the US and China (but not exclusively) could have its nastiest side effects in punitive regulation against foreign businesses. Another area of growing concern is ‘data nationalism’ where companies are increasingly forced to keep critical data inside the Asia Pacific jurisdictions where they operate. Companies are coming under pressure right across the region to do this and, at the same time, most businesses in Asia Pacific have woeful cyber security protections in place.

The implications for Asia Pacific of the fragmentation of IS in Iraq and Syria. This occupies a disproportionate amount of time. Yes there is a danger posed by returning, trained Jihadists, and yes there is a threat posed by the re-emergence of base areas in central Sulawesi or Mindanao, but relative to the havoc caused by terrorism in the Middle East and Europe, Asia’s terrorism risk landscape has been considerably more benign – and will continue to remain comparatively so. The lines of communication are long between East Asia and the Middle East, and there is no refugee crisis to exploit and conceal within. Asia lacks the sheer numbers of individuals with the experience, access to weapons and suicidal intent on the scale of the Middle East or Europe.